The International Energy Agency (IEA) has released a report in which it concludes that the integration of large amounts of renewable energy can be achieved by any country at only a small increase on whole system costs, compared with the current fossil-fuel heavy electricity systems. Making the conclusion even more startling is that the IEA used present-day costs for solar PV and wind, with the two most widely-deployed renewable energy technologies set to provide the bulk of the generating capacity in these transformed electricity systems.

While renewable energy is often blamed for driving electricity prices up and having a costly destabilising affect on electricity grids, the IEA says that integration of renewables into electricity grids and markets can be done so at little cost. For the first 5-10 percent of what it calls variable renewable energy (VRE, essentially wind and solar), the IEA says this poses no technical or economic challenges at all. Even for higher levels of up to 45 per cent penetration, it says would cost only 10% to 15% more than the status quo.

These conclusions are particularly relevant in Australia, where there is a big push for Australia to even obtain up to 10 per cent wind and solar under the current renewable energy target (the remaining 20 per cent is hydro and biomass). South Australia, it should be noted, has reached 31 per cent wind and solar with little or any additional cost. In fact, wholesale prices have fallen the most in that state than any other.

The IEA says the key to incorporating high levels of wind and solar is for countries to employ renewable energy in a way that supports the grid, investing in additional flexible generating capacity and improving the operation of electricity markets.

“Integration is not simply about adding wind and solar on top of ‘business as usual,” said IEA Executive Director Maria van der Hoeven. “We need to transform the system as a whole to do this cost-effectively.” van der Hoeven used the term “reliable renewable resources” throughout her presentation, it seems making the point that solar and wind are not highly variable and therefore unreliable and costly.

The IEA report divides the world’s electricity markets and systems into two power systems, “stable” in more developed economies such as Australia’s and “dynamic” for emerging economies such as India, China and Brazil. The challenge for countries like Australia, is that new generating capacity is not necessarily needed, with electricity demand falling. Therefore dealing with issues resultant from deciding who will pay for stranded assets when power plants are retired before the end of their life will be a challenge.

New generation capacity is needed in “stable” economies, however in the form of renewables and in flexible capacity. The IEA report sees little role in the transformed electricity systems for inflexible generators. During questions after the main presentation of the report, the IEA team pointed to Denmark as an example of how existing coal generators were retrofitted to be able to ramp quickly to support the wind generation capacity – which provides 100% of the required electricity at times. Electric boilers, used to supply civic heating schemes, can also take surplus supply off the grid on windy days.

Importantly, it also notes that wind and solar can be even more cost effectively introduced into emerging economies, because there is not the issue of sunken costs. That contradicts a lot of fossil fuel industry claims that suggest fossil fuels are still the best option for those without access to electricity.

Maria van der Hoeven: “These surmountable challenges should not let us lose sight of the benefits renewables can bring for energy security and fighting dangerous climate change. If OECD countries want to maintain their position as front runners in this industry, they will need to tackle these questions head-on.”

The IEA released its findings in its report, the Power of Transformation, in Paris yesterday. The report is remarkable not only for its findings but also for the fact that the often conservative energy agency has come out in strong support of renewables. The challenge, the report sets out, is not the variable nature of renewables, but that current electricity systems in established economies must be transformed rather than renewables being simply tacked on.

The risk to applying renewables to an untransformed system, the IEA concluded, is that electricity costs will be pushed up. The IEA modelled this scenario, finding that in total system costs can increase up to 40%. The IEA panel acknowledged that costs have been added to the electricity systems of countries that have driven the early stages of renewable energy deployment, such as Germany, but paid testament to the role it has played in delivering the demand sufficient to bring the price of renewable energy down.

The “dynamic” economies, are well placed to employ a transformed and renewable energy driven electricity systems. “The can leap-frog to a 21st century power system – and they should reap the benefits,” said IEA Executive Director van der Hoeven.

Forecasting of renewable energy production was identified as being vitally important in the design of a transformed electrify system. “It makes a huge difference if you use advanced forecasting or not, said IEA report author Simon Müller. “It gets you a huge step forward no matter what forecast you use.”

Storage will also play an important role in a transformed system, with batteries providing voltage regulation and other grid services while pumped hydro providing large volume storage. The IEA panel observed that pumped hydro capacity currently available in Europe is being under-utilised.

For sources of flexible generation capacity, the IEA pointed to natural gas, but the panel stated a number of times that natural gas should not be thought of as a “clean” fuel. “It is the cleanest fossil fuel we have, but is a fossil fuel,” said van der Hoeven. The IEA Executive Director suggested deploying gas with carbon capture and storage.

The head of the IEA’s, presumably growing, Renewable Energy Division, Paolo Frankly said that Concentrating Solar Power (CSP) can also play a significant role in supplying variable generation capacity.